Options Trading News

November 14, 2012  Wed 11:10 AM CT

One trader apparently thinks that the run is over in USG.

optionMONSTER's Depth Charge tracking program detected the purchase of about 4,000 December 26 puts for $2.05 to $2.15. Volume was more than 20 times open interest at the strike, so this is clearly a new position.

The trader has now locked in a $26 selling price on drywall maker, no matter how low the shares go. That provides inverse leverage to the stock price, so the put buyer is effectively short the name. (See our Education section for more on why buying puts often makes more sense than selling shares.)

USG is down 0.63 percent to $25.31 in midday trading. The stock more than quadrupled in value between October 2011 and November 2012 as investors priced in a stronger North American housing market, but it has been falling since.

The unusual thing about today's activity is that the investor is using in-the-money contracts, which more closely track drops in the stock price. This suggests that he or she is a speculative bear rather than a shareholder looking to hedge a long position.

Puts outnumber calls by 9 to 1 in the name so far in the session, according to the Depth Charge.
Share this article with your friends


Premium Services

Education & Strategy

The art of trading

As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

View more education articles »